Canzano: Pac-12 looked at 'everything and anything'
Private equity? Private capital?
Pac-12 Conference Commissioner Teresa Gould is fresh off three days spent in Las Vegas at a convention that featured the top sports business minds sucking in second-hand smoke while talking about college athletics.
Utah is signing on for a $500 million private-equity deal.
The Big 12 is finalizing an agreement that would add hundreds of millions in private capital.
Is the Pac-12 about to leap into that space?
I tracked Gould down before her Saturday morning coffee.
“We’ve looked at everything and anything that will add value for our membership,” she told me.
Before I go any further, let’s note the difference between “private equity” and “private capital.” They’re both investments. They both create immediate cash. But they are different.
Private equity brings an investor into your business. With that comes another voice in your conversations, your decision-making, and your strategy. You get the up-front cash, and invite a third party into the room to tell you how to run the operation.
That’s what the University of Utah signed on for this week. In exchange for $500 million, Otro Capital will hold a minority stake in Utah Brands & Entertainment LLC. It gets a governance voice in a new company that will oversee major revenue streams for Utah athletics.
The private capital path is different. It’s essentially a low-cost loan. That’s the basis of the deal the Big 12 is finalizing for its members. If schools opt in, they’ll get an infusion of up-front cash borrowed against future distributions from the conference.
In late 2018, the Pac-12 explored a private-equity investment deal. Commissioner Larry Scott created a new entity called “Pac-12 NewCo” and spent nine months talking with private equity firms.
The conference was offered $1 billion for 15 percent equity in the company by a private-equity firm, per sources.
The Pac-12 presidents voted it down. The biggest pushback came from USC and UCLA. Scott said of his board members, “They don’t want to do something with a private equity or financial firm.”
There are problems in trying to do a private-equity deal with a conference, as the Big Ten learned. The grant of rights is among the complications. Those come with expiration dates. You’ve also got public universities and boards involved.
Gould told me on Saturday that the ‘in-bound’ offers to the Pac-12 have been endless in the last 18 months. In Las Vegas this week, she was approached several times by people who were lurking around, waiting to have conversations.
“Getting debt is not hard to do,” she told me. “What we’ve been thinking and talking about is not the quick economic return, but what kind of commercial partners bring expertise and acumen to what we’re doing.”
Keep in mind, the Pac-12 already has established an outside entity — Pac-12 Enterprises. It’s a for-profit endeavor. All the commercial efforts run through that arm of the business, and when I talk with presidents, I get the sense that the conference has a sneaky-big vision for what it will blossom into.
Given how close the new-world Pac-12 is to launch, there’s a ton of energy being expended right now with vision and strategy. It didn’t sound to me like the Pac-12 had the bandwidth to explore a private capital partnership like the Big 12.
As one president told me, “Let’s not even go there until we get the conference away from the dock.”
That doesn’t mean the schools themselves won’t make deals. In fact, I’ve wondered in particular about Oregon State and Washington State. Those two have been hit harder than anyone by conference realignment. And what about Oregon and Washington? What’s to stop them from chasing new money?
I had a friend in the investment banking world describe private equity like “putting on a jet pack.” Utah is leaning hard into the ‘for-profit’ model. But there’s a line crossed when you go from operating as a non-profit athletic department to becoming a profit-hungry, risk-adjusted return enterprise.
“What is our budget constraint?”
“How much can we fundraise?”
Those are traditional questions asked by the folksy campus athletic director. That’s about to be replaced with a far more aggressive mindset and new thinking. I suspect new-world athletic directors will be different animals. I’ll bet the next wave of AD hires reflects that. I expect them to come to campuses from the corporate world, with some previous experience as a CEO.
Remember, the University of Oregon had Pat Kilkenny step up years ago and work as the school’s athletic director for a spell. Kilkenny is a savvy businessman. He built an insurance empire. He took the job at UO for a salary of $1 per year, the Ducks pointed the operation toward the heavens, and started acting like a business.
On Kilkenny’s watch, UO built Matthew Knight Arena like it was a couple of guys building a deck in the backyard over a three-day weekend.
The profit hunters at PE firms will implement operational and strategic improvements. Costs will be cut. The entity’s profitability and value will drive the core decisions. The traditional ADs who came up working on campus will phase out. There will be a level of efficiency here that isn’t bad. But it comes with risks, and I wonder if it will impact culture, particularly at a place like Utah.
I have an entrepreneurial spirit. It’s why I seized control of this independent writing endeavor. I’m in business, working for you. Before my launch, I met with some smart people who built businesses themselves. They were filled with ideas, and shared with me that the control they had over the business was a big part of their joy.
I’m not just the columnist here. I’m a gatekeeper who has guarded the reach of this publication, keeping the annual subscription price at 16 cents a day, turning away advertisers who asked if they could place a banner ad in the middle of the copy, and blowing off weekly offers from marketing agencies asking if I might publish their “guest editorial” in this space for a fee.
This is sacred space.
I guard it.
An athletic department is a divine place. I’m not telling schools not to take private money. They have smart people working on campus. They can draw safeguards between themselves and the private-equity firms and protect their core values. But the line is getting muddied up.
Otro Capital will hold a minority stake in Utah Brands & Entertainment LLC. This company will oversee major revenue streams for Utah athletics. Long-time Utes’ football coach Kyle Whittingham announced his retirement in the same week the school signed the private-equity deal. Whit got out alive. I’m happy for him. I couldn’t help but think of the delicate dance between the old guard and the new.
Otro translates to “other” in Spanish. The literal translation here is “other money,” which beats the money you already have as long as you can hold onto your soul. But let’s not ignore that being hyper-focused on maximum short-term returns doesn’t always mesh with the mission to build long-term company stability. Again, proceed with caution and remind yourself of your value system with every step.
I’m talking to schools in the Pacific Northwest now.
I could feel campus leaders in Corvallis, Eugene, Pullman, and Seattle sit forward in their chairs as the ink was drying on the deal in Salt Lake City. We’re about to see a flood of these individual deals.
I don’t think Oregon will blink when a private-equity offer materializes for the athletic department. And Washington is going to need an infusion of cash to keep the upper tier of the Big Ten within view of the windshield.
Washington State has a hole in its athletic department budget and is ripe for a private-equity investment. And Oregon State keeps saying it wants to spend like a top-tier program in the new conference, but I’m struggling with the math.
The Beavers can’t consistently fundraise their way to competitiveness. That is, unless Nvidia founder Jensen Huang becomes a football fan or OSU puts on that private-equity jet pack and flies to a $500 million payout.
Again, it’s not all bad.
There are parts of it that smell funny, though.
These universities are institutions. They’re going to be around for centuries to come. The conferences? We’ll see. Private-equity firms are in the risk-assessment business. They covet stability. It’s why the long-term extension of the grant of rights of the Big Ten became a sticking point.
The PE firms weren’t about to give hundreds of millions of dollars to an entity that is 18 months into a seven-year grant of rights. That’s a blink in their world.
Meanwhile, WSU President Elizabeth Cantwell went public this week with an ask to her donors for $5 million in new NIL funding. The Cougars hired a new football coach, Kirby Moore. Cantwell is smart. She’s hoping to seize on the momentum of that hire. Oregon State’s hire of JaMarcus Shephard was celebrated with social media posts by President Jayathi Murthy.
We’re in an unprecedented time. I’ve never seen campus leaders more involved in marketing their campuses, fundraising for athletics, and pumping up the football coach.
It’s part of the gig now.
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I love college football and worry that this will eventually lead to it’s demise.
The conference commissioners and ADs sold their souls to television many years ago. Now they're repeating the money-grubbing process with private equity firms. It's a trap. Those people are only interest in profits and exit strategies. I fear for the future of college athletics.
As for the Bald Faced Truth, thank you so much, John, for turning down investors and advertisers. Your space is sacred, and we all value it tremendously.